A newly issued 10-year maturity, 9% coupon bond making annual coupon payments is sold to the public at a price of $958

NPER = 10 years [Number of periods signified by Time to maturity]

PMT = 9% * 1,000 = $90 [Coupon Payment = Coupon rate * Face Value]

PV = -958 [Price of bond paid at the time of purchase. As it is a cash outflow, hence, with a negative sign]

FV = 1,000 [Face value received at maturity of the bond]

Putting the above paramteres either in Excel's RATE function or a financial calculator and solving for Rate. The calculated Rate will be the Yield To Maturity of the bond.

YTM of the bond = RATE(NPER, PMT, PV, FV) = RATE(10,90,-958,1000) = 9.67%

Using the YTM, we can find the Price of bond one year later.

Time to maturity after 1 year = 9 years

Price of the bond after 1 year = Coupon * (1 - (1+YTM)^-T) / YTM + Face Value / (1 + YTM)^T

Price of the bond after 1 year = 90 * (1 - (1 + 9.67%)^-9) / 9.67% + 1000 / (1 + 9.67%)⁹

Price of the bond after 1 year = 90 * 5.8344 + 435.58 = 525.10 + 435.58

Price of the bond after 1 year = $960.68

Capital Gains over the year = Price of the bond after 1 year - Price of the bond at the time of purchase

Capital Gains over the year = 960.68 - 958 = $2.68

Interest Earnings over the year = $90

Total Taxable Income = Capital Gains + Interest earning = 90 + 2.68

Hence, Taxable Income from the bond over the year = $92.68